Do you remember our AP History class discussing the Smoot-Hawley Tariff Act? Well, I definitely didn’t get a five on that exam. Enacted in 1930 to support U.S. farmers, it ended up crashing global trade when Europe retaliated. I think most economists agree it deepened and prolonged the recession, turning it into the Great Depression. So, do you think Trump’s tariffs will backfire? Could we actually see a trade surplus for once? What are your thoughts?
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Obligatory Ferris Bueller’s Day Off video:
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History is written by the victors.
The globalists blame Smoot-Hawley for everything. They were hardly going to blame the Fed.
One-third of the money supply vanished following the Wall Street Crash.
Hoover hiked income taxes in 1932 (top rate from 25% to 65%, bottom rate from 0.4% to 4%), and FDR hiked again, to 79%.
In the 1920s, under Harding, and Treasury Secretary Andrew Mellon, Congress passed the Fordney-McCumber Tariff Act, which doubled average duties to 38%, but 2/3rds of all imports entered the US duty-free. Unemployment was 12% when Harding took office and 3% when Coolidge left office. Between 1922 and 1927, the economy grew at 7% a year. At the end of the Coolidge administration, the US share of world manufacturing was 42.2%.
So Harding and Coolidge doubled tariffs and more than halved income tax, and got the greatest peacetime expansion in history. Better than the Gipper.
Then came Herbert Hoover.
29 October 1929 the Wall Street Crash.
Within 6 months, 10% of US workers were unemployed, factories were shutting down, banks were closing, savings vanishing.
One third of the money supply vanished.
8 months after the Crash, in June 1930, Congress passed and Hoover signed Smoot-Hawley, raising tariffs from near 40% (they were 38% under Fordney-McCumber) to 57%. At the time it was passed, the US had a trade surplus.
Smoot-Hawley came 8 months after the Crash, and the Great Depression was already underway.
Tariffs were a bipartisan issue at the time. The 1928 Democrat platform endorsed tariffs.
People are taught that Smoot-Hawley imposed the highest tariff levels in US history.
That honor actually goes to the Tariff of Abominations, with a rate of 62%, which applied to 92% of US imports versus one-third of imports for Smoot-Hawley.
From 1928 to 1933, US GNP dropped from $104B to $56B. A drop of $48B.
The breakdown of that drop:
net exports fell $700M. That’s what, 1.5% of the fall in GNP. What about the other 98.5%?
domestic spending fell $47.3B.
In 1933, FDR rolled back the Smoot-Hawley tariffs to below the Fordney-McCumber levels.
No recovery.
In 1937, FDR slashed tariffs to some of the lowest levels in the 20th century. A second wave of the recession followed.
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I honestly have no idea. My base case is that quite a few allies will pivot towards China. China has geography and predictabiility on its side. But then again the global economy with all its interdependencies is such a chaotic system that pretty much anything can happen.
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The issue with tariffs is two-fold. In a purely mathematical or theoretical sense, there are arguments both for and against them. But due to the complexities of markets and the randomness inherent in economic behavior, it’s incredibly difficult to isolate the effects of any single policy or action. Personally, I’m not an economist, but I believe these tariffs will ultimately backfire. I have my own theories and instincts about why—but I’m well aware they can be challenged, and I’m not particularly interested in debating them.
What concerns me more is how Trump and his administration are handling the narrative in the media. Their approach is doing serious damage to America’s “soft power”—that intangible influence built on trust, stability, and diplomatic leadership. You can argue the merits of tariffs, but what’s undeniable is that global trust in the U.S. has declined. Key allies like Japan and South Korea are increasingly leaning toward China, and similar trends are emerging in Europe.
This is my biggest issue with Trump: he acts like a schoolyard bully rather than a statesman. He lacks the diplomatic nuance required to navigate complex negotiations and seems convinced he alone knows how to handle everything. The truth is, he doesn’t. Putin is outmaneuvering him, and China appears content to sit back and watch as he stumbles over his own rhetoric. His behavior is so counterproductive to his stated goals that it raises serious questions about his judgment—or even his mental fitness.
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ay mijo!
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By many measures, China is already more influential than the U.S. It’s the top trading partner for most countries and makes a third of the world’s industrial goods. Thats almost three times more than the U.S. It holds the largest foreign currency reserves, leads in scientific papers and patents in key tech fields, and keeps making breakthroughs. China also dominates critical minerals and the tech needed for the green transition. I think something like 80-90% of critical minerals AND their processing know-how is in China. Thats ALOT.
By traditional power metrics like steel production and shipbuilding, China is already dominant. It produces over ten times more steel and has more than 200 times the shipbuilding capacity of the U.S. In both areas, China accounts for over half of the world’s total capacity.
On the horizon is a future where China becomes the key global player in many areas. In the Global South, it already is. China is set to take a central role in multilateral organizations like the UN and WTO, as well as in sustainable development, science, and technology. China’s economic practices—like active industrial policy, state subsidies, and protecting strategic sectors—are already spreading. Chinese values, norms, and standards will likely shape many other areas too.
The U.S. has long had strengths in its global alliances, military reach, powerful defense industry, and the dollar’s role in world finance, giving it unique leverage with sanctions. It’s also had plenty of soft power—its universities and tech hubs have drawn global talent. And it’s wanted to lead. But does it still? Ask many “allies”, especially in Europe, and I’d be surpised if the leaders are not doing a Monte Carlo simulation on whether China could actually be a more predictable and trustworthy partner, despite all its flaws. The argument of China not respecting global laws etc, is kinda weak when the US planning an M&A of Greenland. It’s not even what it is that’s the most important. It’s what it looks like what counts. And the Greenland “deal” is looking pretty ■■■■■■■ bad.
Can you do business with a communist power? That may be risk-ay!
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A 10% dip in two days! What a beautiful day! Such a massive pullback. The SPY traded as low as $480 and closed at $507. Still, in my humble opinion, the market is massively overvalued, and there are no deep discounts.
Ps. Did you all see Taiwan had a circuit breaker event!
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The Kindleberger Trap
We all know the “Thucydides Trap,” where it’s said to be inevitable that a rising power and a falling power go to war. The falling power thinks the rising power has ideas above her station while the rising power things she isn’t being treated with the respect she deserves. Thucydides originally wrote about the Peloponnesian Wars (Sparta and Athens), but his trap has been said to be the cause of many subsequent wars including WW1.
Now the “Kindleberger Trap.” Kindleberger, an intellectual architect of the Marshall Plan, argued that “the disastrous decade of the 1930s was caused when the US replaced Britain as the largest global power but failed to take on Britain’s role in providing global public goods.”
In domestic politics, governments produce public goods such as policing or a clean environment,
from which all citizens can benefit and none are excluded. At the global level, public goods – such as
a stable climate, financial stability, or freedom of the seas – are provided by coalitions led by the
largest powers.
We just saw an example of “freedom of the seas” in the attack on Yemen, which reportedly has cost the US roughly $1B to date. In another thread, I echoed Stephen Miller in saying
if 3% of US trade runs through the Suez while 40% of European trade does,
they have a point: why aren’t the Europeans doing the heavy lifting here instead of the US?
Around 60% of Chinese trade with Europe typically transits through Suez.
What’s all this got to do with Smoot-Hawley?
One “public good” would be a global reserve currency. In the 1930s, the Bank of England lacked the ability to continue to serve as international lender of last resort, and the ascendant Federal Reserve lacked the will to do so. Smoot-Hawley was framed.
Trump nearly triggered a second global financial crisis when the yields spiked and hedge funds unwound their basis trades. That’s why he backed off on the tariffs—he didn’t want to be remembered as the president who pushed the U.S. into another Great Depression. Although the Smoot-Hawley Tariff Act was passed after the Great Depression began, it deepened and prolonged the economic downturn.
The last few days have been such an embarrassement to the Trump administration.
Tariff this, tariff that, the funniest part is their effort to explain how this all was part of a playbook. Now this idea to bring back deported illegals because the idiot realized that US farms and hospitality industry actually do not function without them.
King Donald antics remind me of this GOT scene:
